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12-105(L)12-109 (CON), 12-111 (CON), 12-157 (CON), 12-158 (CON),
12-163 (CON), 12-164 (CON), 12-170 (CON), 12-176 (CON), 12-185
(CON), 12-189 (CON), 12-214 (CON), 12-909 (CON), 12-914 (CON),
12-916 (CON), 12-919 (CON), 12-920 (CON), 12-923 (CON), 12-924
(CON), 12-926 (CON), 12-939 (CON), 12-943 (CON), 12-951 (CON),
12-968 (CON), 12-971 (CON), 12-4694 (CON), 12-4829 (CON), 12-4865
(CON)
In the United States Court of Appeals for the Second CircuitNML
CAPITAL, LTD., AURELIUS CAPITAL MASTER, LTD., ACP MASTER, LTD.,
BLUE ANGEL CAPITAL I LLC, AURELIUS OPPORTUNITIES FUND II, LLC,
PABLO ALBERTO VARELA, LILA INES BURGUENO, MIRTA SUSANA DIEGUEZ,
MARIA EVANGELINA CARBALLO, LEANDRO DANIEL POMILIO, SUSANA
AQUERRETA, MARIA ELENA CORRAL, TERESA MUNOZ DE CORRAL, NORMA ELSA
LAVORATO, CARMEN IRMA LAVORATO, CESAR RUBEN VAZQUEZ, NORMA HAYDEE
GINES, MARTA AZUCENA VAZQUEZ, OLIFANT FUND, LTD.,
Plaintiffs-Appellees, -v.REPUBLIC OF ARGENTINA,
Defendant-Appellant, (Caption Continued on Inside Cover) ON APPEAL
FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK RESPONSE OF APPELLEES TO THE REPUBLIC OF ARGENTINAS MARCH
29 PROPOSAL (Appearances on Inside Cover)
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THE BANK OF NEW YORK MELLON, AS INDENTURE TRUSTEE, EXCHANGE
BONDHOLDER GROUP, FINTECH ADVISORY INC., Non-Party Appellants, EURO
BONDHOLDERS, ICE CANYON LLC, EURO BONDHOLDERS, Intervenors. Robert
A. Cohen Eric C. Kirsch DECHERT LLP 1095 Avenue of the Americas New
York, N.Y. 10036 (212) 698-3500 Theodore B. Olson Matthew D. McGill
Jason J. Mendro GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut
Avenue, N.W. Washington, D.C. 20036 (202) 955-8500 Counsel for
Plaintiff-Appellee NML Capital, Ltd.
Edward A. Friedman Daniel B. Rapport FRIEDMAN KAPLAN SEILER
& ADELMAN LLP 7 Times Square New York, N.Y. 10036 (212)
833-1100
Roy T. Englert, Jr. Mark T. Stancil ROBBINS, RUSSELL, ENGLERT,
ORSECK, UNTEREINER & SAUBER LLP 1801 K Street, N.W. Washington,
D.C. 20006 (202) 775-4500 Counsel for Plaintiffs-Appellees Aurelius
Entities and Blue Angel Capital I LLC Michael C. Spencer Gary
Snitow MILBERG LLP One Pennsylvania Plaza New York, N.Y. 10019
(212) 594-5300 Counsel for Plaintiffs-Appellees Pablo Alberto
Varela et al.
Leonard F. Lesser SIMON LESSER, P.C. 420 Lexington Avenue New
York, N.Y. 10170 (212) 599-5455 Counsel for Plaintiff-Appellee
Olifant Fund, Ltd.
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TABLE OF CONTENTS Page PRELIMINARY STATEMENT
...............................................................................1
ARGUMENT
.............................................................................................................5
I. II. Argentinas Proposal Contravenes Both This Courts October 26
Decision And This Courts March 1 Order
.....................................................5 Argentinas
Proposal Fails To Demonstrate That The District Court Abused Its
Discretion
......................................................................................8
CONCLUSION
........................................................................................................16
i
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TABLE OF AUTHORITIES Page(s) Cases Chemical Bank New York Trust
Co. v. Kheel, 369 F.2d 845 (2d Cir. 1966)
.................................................................................10
Elliott Assocs. L.P. v. Banco de la Nacion, 194 F.3d 363 (2d Cir.
1999)
.................................................................................14
Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325
(2d Cir. 2005)
...................................................................................9
NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir.
2012)
.........................................................................
passim Savoie v. Merchants Bank, 84 F.3d 52 (2d Cir. 1996)
.....................................................................................14
W.R. Grace & Co. v. Local Union 759, Intl Union of United
Rubber, Cork, Linoleum & Plastic Workers of Am., 461 U.S. 757
(1983)
.............................................................................................12
Weltover, Inc. v. Republic of Argentina, 941 F.2d 145 (2d Cir.
1991)
.................................................................................14
ii
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PRELIMINARY STATEMENT With its latest submission in this Court,
the Republic of Argentina continues its long and consistent pattern
of defaulting on its contractual obligations, defying the laws of
the United States (which its contracts expressly invoked), and
showing contempt for the courts to whose jurisdiction it
unreservedly submitted. The government of Argentina plainly
believes the rule of law does not apply to it. To recapitulate
briefly how the parties and this Court have come to this point:
Argentina has defaulted on its indebtedness pursuant to instruments
it created to raise funds under the laws of the United States.
Argentina undertook a unilateral and coercive approach to [its]
debt restructuring, rejecting practices that have allowed other
[s]overeign bond restructurings to be resolved quickly, without
severe creditor coordination problems, and involving little
litigation. Ex. A, at 1-2. In keeping with that approach, it
refused to comply with its explicit commitment to treat its payment
obligations on the bonds held by Appellees at least equally with .
. . its other . . . unsubordinated External Indebtedness. 699 F.3d
246, 251 (2d Cir. 2012). The district court, after reviewing
numerous briefs and conducting multiple hearings over the course of
16 monthswhich provided Argentina more than ample opportunities to
be heard on every conceivable argument it wished to advanceheld
that Argentina violated the Equal Treatment Provision that it had
written into its bonds, that an equitable remedy was necessary
and
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appropriate, and that a suitable equitable remedy was to require
Argentina to make a ratable payment to Appellees whenever it makes
a payment on the Exchange Bonds. The district court found as fact
that Argentina had ample resources to pay Appellees, as well as the
Exchange Bondholders, and that the balance of the equities
overwhelmingly supported the remedy ordered. This Court unanimously
affirmed the district courts findings and conclusions. 699 F.3d at
257-64. The Court further held that Appellees were completely
within their rights to reject the 25-cents-on-the-dollar exchange
offers that Argentina had made in 2005 and 2010. Id. at 263 n.15.
Panel rehearing and rehearing en banc were denied without dissent.
This Court explained that the only task that remained as to the
Injunctions application to Argentina was for the district court to
clarify how the injunctions payment formula is intended to function
(id. at 250), which the district court did. This Court nevertheless
gave Argentina one final chance to submit in writing the precise
terms of any alternative payment formula and schedule to which it
is prepared to commit. Dkt. No. 903, at 1 (March 1 Order). In
response, Argentina has now submitted a predictably and
characteristically defiant response that fails completely to comply
with its equal treatment obligations or to take seriously the
specific directions in this Courts March 1 Order. Instead of
proposing a formula for repay[ing] debt obligations on the
original
2
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bonds (id. at 2), Argentina offers to eliminate those
obligations in return for new, deeply-discounted, potentially
unenforceable, and unmarketable paper, payable decades hence.
Indeed, according to Argentinas own math, those new securities
would be worth less than 15% of what Argentina owes on the FAA
Bonds. Argentina Resp. 9; accord Ex. C, at 1 (Bloomberg estimating
the value of Argentinas offer at one-sixth of what Appellees are
owed). Argentinas response manifests yet again its contempt for its
obligations, the laws of the United States, and the orders of U.S.
courts. Astoundingly, Argentina has the temerity to claim that its
submission reflects a good faith effort to comply with the Courts
[October 26] ruling to the extent possible. Argentina Resp. 13 n.10
(emphasis added). But Argentinas statements to this Court and to
the public belie any genuine willingness to comply with the Courts
orders. At the most recent hearing before this Court, Argentinas
counsel declared that Argentina would not voluntarily obey any
order other than the one it proposed. Transcript of Feb. 27 Oral
Argument 12:23-24, 13:1-2 (Tr.), Ex. B. Then, in its March 29
proposal, Argentina portended that great harm to the exchange
bondholderswhich could be caused only by Argentinas own
actionswould come if this Court affirms the district courts
Injunction. Argentina Resp. 11. And just 12 hours after Argentina
issued this proposal, its Vice President declared at a press
conference that Argentina is seeking a mechanism
3
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to pay on the Exchange Bonds without paying Appellees, in direct
violation of any ratable payment injunction and the preliminary
injunction currently in effect, adding that under any condition, in
any instance, whatever the [court] result . . . one way or another,
Argentina is going to pay on the Exchange Bonds. Ex. D; Ex. E, 2.
This is exactly how Argentina has dealt with creditors for the last
decade: unilaterally dictate pennies-on-the-dollar exchange offers,
and threaten to pay nothing if the offer is rejected. Argentina has
now treated the Court the same way; that is the very antithesis of
good faith. Argentinas duplicity confirms that the district court
was well within its considerable latitude (699 F.3d at 261) to
require Argentinaafter 11 years of paying Appellees nothingto pay
what it currently owes Appellees under the FAA Bonds the next time
it pays what it currently owes under the Exchange Bonds. Argentinas
statements that it will attempt to evade the Injunction if this
Court does not accede to its demands further reinforce that the
Injunction is equitable andgiven Argentinas unyielding disregard
for the law to which it voluntarily submittednecessary to provide
Appellees the relief to which they are entitled. The district
courts remedy is manifestly within its broad discretion to fashion
relief in equity, is fully consonant with the governing contractual
agreements, and should be affirmed.
4
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ARGUMENT I. Argentinas Proposal Contravenes Both This Courts
October 26 Decision And This Courts March 1 Order
In its October 26 Decision, this Court held that Appellees were
entitled to specific performance of their rights under the FAA
Bonds and explained that Appellees were completely within their
rights to reject the 25-cents-on-the-dollar exchange offers. 699
F.3d at 261-64 & n.15. Then, in its March 1 Order, this Court
asked Argentina to articulate: (1) how and when it proposes to make
current those debt obligations on the original bonds that have gone
unpaid over the last 11 years; (2) the rate at which it proposes to
repay debt obligations on the original bonds going forward; and (3)
what assurances, if any, it can provide that the official
government action necessary to implement its proposal will be
taken, and the timetable for such action. March 1 Order, at 2.
Argentinas response does none of these things. More troubling
still, Argentina acts as if this Court had neither issued the
October 26 Decision nor denied its petition for rehearing from that
ruling. Argentinas proposal entails no plan to make current those
debt obligations on the original bonds that have gone unpaid over
the last 11 years or to repay them going forward. It includes no
plan to repay debt obligations on the original bonds at all.
Argentina proposes to never pay its obligations on Appellees FAA
Bonds and, instead, to replace those Bonds with an assortment of
new bonds modeled onbut actually substantially worse thanthe
exchange offers this Court 5
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determined Appellees were completely within their rights to
reject. 699 F.3d at 263 n.15. Even under Argentinas own math, this
package of IOUs is worth just $210 millionless than 15% of the
$1.47 billion Appellees were owed under the FAA Bonds as of March
1, 2013and would not begin to repay principal for more than a
decade. Argentina Resp. 9, 12 & n.9. For instance, the Discount
Optionthe only option available for 99.9% of the value of the bonds
at issue in this caseensures that most of the principal on the FAA
Bonds will never be paid; under the Discount Option, the FAA Bonds
are replaced with new securities whose total principal amount is
only a fraction about one thirdof the original principal on the FAA
Bonds. And with respect to past due interest, Argentinas suggestion
that it is prepared to compensate plaintiffs for past due interest
to bring them current (Argentina Resp. 5) is simply false.
Argentina does not offer to pay its 11 years of past due interest
on the FAA Bonds, either now or ever. Instead, it proposes to payin
the form of new bondsan amount calculated (i) based on the interest
rate of the Discount Bonds, which is lower than most FAA Bonds,
(ii) only on the vastly lower principal amount of the Discount
Bonds, and (iii) only on cash interest that would have been paid on
this substantially reduced principal amount of the Discount Bonds
since 2004. Argentina thus proposes to pay Appellees only a small
percentage of the past due interest it owes, and then only in the
form of Argentine IOUs, not in cash. The entire tan-
6
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gled array of unreliable and likely unmarketable securities that
comprise Argentinas proposal is further explained in Appendix A
hereto. Not only are the details of Argentinas proposal
unacceptable and unresponsive; Argentina fails even to provide this
Court with meaningful assurances that it will actually comply with
its own proposal. March 1 Order, at 2. Argentinas vague statement
that it is willing to submit unspecified legislation to its
Congress is not paired with any assurances (much less security)
that it will not impose a new moratorium on payments on its new
obligations to Appellees. This is, after all, a country run by the
same administration that promised to not pay a peso to Appellees.
Ex. F. And the danger of a renewed default would become
particularly acute if Argentina succeeds in implementing its widely
reported plan to move offshore its payments on the Exchange Bonds.
See Ex. D (Vice President Boudou: under any condition, in any
instance, whatever the [court] result . . . one way or another,
Argentina is going to pay on the Exchange Bonds).1 Argentina
appears to believe
1
The Vice Presidents declarations are consistent with reportsboth
preceding and following the February 27 oral argumentthat Argentina
is actively devising a scheme to move the payments on the Exchange
Bonds outside of the United States. Ex. J (We are hearing that
Buenos Aires has advanced materially in an eventual Plan B. . . .
[which] will include jurisdiction change (Buenos Aires and perhaps
Italy?), a reopening of the swap for holdout investors that are not
included in the group that is currently litigating with Argentina,
and perhaps even a buyback offer for NY-law debt. . . .); Ex. K
(reporting that [t]he government is only now preparing alternative
[Footnote continued on next page] 7
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this Court should take its word as its bond that it will honor
its new, patently unacceptable proposal. But the long history of
this litigationand now Argentinas own wordsamply demonstrates the
opposite. II. Argentinas Proposal Fails To Demonstrate That The
District Court Abused Its Discretion
In its prior decision, this Court explained that the district
court had considerable latitude to fashion equitable relief. 699
F.3d at 261. The payment formula in the district courts Injunction
was well within this broad equitable mandate, and, unlike
Argentinas proposal, was completely consistent with the language of
the FAA under which Argentina willingly borrowed money, waived
sovereign immunity, and submitted to the jurisdiction of this
Court. Appellees Post-Remand Brief, Dkt. No. 821, at 17-48. That
Argentina has now proposed a wholly inadequate alternative remedy,
which is directly contrary to this Courts October 26 Decision and
March 1 Order, cannot possibly make the district courts considered
decision to award the Injunction an abuse of discretion. Argentinas
proposal is inequitable most obviously because it would offer
Appellees less than 15% of the $1.47 billion Argentina acknowledges
that Appellees are owed under the terms of the FAA Bondsless even
than what bondhold[Footnote continued from previous page] payment
schemes including seeking protection that is 100% legal so that
they can make them abroad, including to Argentine bondholders).
8
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ers received in the 2005 and 2010 exchanges. Argentina thus
wishes to ensure that it never has to make current its obligations
on Appellees FAA Bonds. Moreover, these new securities (assuming
they are similar to those offered in the 2005 and 2010 exchanges)
potentially could include a wide range of clauses and covenants
materially less protective of creditors than those of the FAA
Bonds, further impairing the proposals actual value. Argentina
mischaracterizes the plain text of the Equal Treatment Provision
when it claims that it need only accord equal treatment among
bondholders. Argentina Resp. 4 (emphasis added). As this Courts
October 26 Decision squarely held, the Provision does not require
Argentina to rank or treat bondholders equally; it requires
Argentina to rank payment obligations at least equally. 699 F.3d at
259 (emphasis added). The district courts Injunction enforced the
Provision by requiring Argentina to pay Appellees what is currently
due under the FAA Bonds whenever, and to the same extent, that
Argentina pays what is currently due on the Exchange Bonds.
Argentinas proposal, in contrast, makes no attempt to honor its
payment obligations under the FAA Bonds, now or ever. Under
wellestablished equitable principles, each creditor should receive
what it is entitled to, even if other creditors do not receive the
same thing because they are not similarly situated. See Fin. One
Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 344 (2d
Cir. 2005). As Judge Friendly observed, [e]quality among
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creditors who have bargained for different treatment is not
equity but its opposite. Chem. Bank New York Trust Co. v. Kheel,
369 F.2d 845, 848 (2d Cir. 1966) (Friendly, J., concurring).2 What
is more, Argentina apparently would issue the securities for this
proposal in a new series. The securities in this new series would
be at obvious risk for future default given Argentinas oft-repeated
promise never to pay Appellees. This inevitably will diminishif not
eliminate entirelythe pool of potential secondary purchasers of
these securities, and this diminished demand inevitably will impair
the market value of these new bonds. As Argentinas former Secretary
of Finance (who was in charge of the 2005 exchange) recently
explained to an Argentine news agency, the very low liquidity of
the bonds in the proposal is a way to punish
2
Based on the market value of the bonds Argentina is offering as
of March 1, 2013 (even on the generous assumption that this
separate series of securities would be valued in line with those
issued in prior exchanges, see infra at 1011), Appellees calculate
that Argentinas Discount Option proposal is worth about 34% less
than the value an investor would have received had the investor
participated in the 2005 exchange offer and about 24% less than the
2010 exchange offerin other words, the sum of all cash payments
from the Exchange Bonds plus their remaining market value. The
difference arises in large part because of the past payments on the
GDP Units, to which Appellees would not be entitled under the
proposal. Argentina Resp. 7. The other major part of the difference
is the lesser value of Global 17s that would be issued in lieu of
interest, as compared to the cash coupon payments that the Exchange
Bondholders received over the last several years. Argentinas
assertion that its proposal provides for equal treatment among
bondholders (Argentina Resp. 4) thus fails even on its own
terms.
10
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the holdouts because there will be no markets for trading. Ex.
G. Hence, analysts have summarized Argentinas proposal: The
plaintiffs are merely given yet another chance to be paid mainly in
highly risky, long-term IOUs the little money that Argentina wants
to pay them. Ex. H. Argentinas belated assertion that it lacks the
financial resources to comply with the district courts Injunction
(Argentina Resp. 12-13) is not only contrary to the finding of the
district court affirmed by this Court (699 F.3d at 263), but is
demonstrably false. Argentinas recent claim that it could suddenly
be exposed to liabilities of $43 billion is bogus. Argentina Resp.
13. Argentina has decades to repay its obligations on the Exchange
Bonds, and has promised to do so under any condition, in any
instance, whatever the [court] result. Ex. D. Argentina paying
Appellees the $1.47 billion that it owes Appellees now would not in
any way impair its ability to honor its payment obligations on the
Exchange Bonds over the coming decades. Argentinas suggestion that
paying Appellees somehow would trigger an immediate obligation to
pay the entire amount outstanding on the Exchange Bonds is likewise
blatantly false. Argentina misleadingly invokes the Exchange
Bondholders Rights Upon Future Offers clause (Argentina Resp. 7-8
& Annex B), but that clause comes into play only if Argentina
voluntarily makes an offer to purchase or exchange defaulted bonds.
Id. Nothing in this clause prevents Ar-
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gentina from complying with an injunction, issued by a district
court of the United States. After all, compliance with an
injunction is in no sense voluntary. See W.R. Grace & Co. v.
Local Union 759, Intl Union of United Rubber, Cork, Linoleum &
Plastic Workers of Am., 461 U.S. 757, 766 (1983) (An injunction
issued by a court acting within its jurisdiction must be obeyed
until the injunction is vacated or withdrawn.). Accordingly, the
only amount Argentina would pay as a result of this Court affirming
the district courts Injunction is $1.47 billion, which is a mere
fraction of what Argentina paid to the Exchange Bondholders in
December 2012 alone. If holders of other defaulted indebtedness
later bring equal treatment claims of their own, Argentina will
have ample opportunity both to litigate the merits (taking into
account any factors that may distinguish those bonds from the ones
at issue here, including different contractual language and
governing law) and to make a showing of financial need, based on
circumstances then prevailing, for the district court to consider
in shaping a remedy. Similarly meritless is Argentinas attempt to
reassert its argument that the Injunction will upset sovereign
restructurings by other countries. This Court already rejected that
argument in its October 26 Decision (699 F.3d at 263-64), and again
when it denied Argentinas petition for rehearing. And evidence
continues to mount to support this Courts conclusion. As Moodys
recently observed,
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[s]overeign bond restructurings have generally been resolved
quickly, without severe creditor coordination problems, and
involving little litigation. Ex. A, at 1. Moodys further noted that
Argentina is the sole exceptionthe only case among the 34 sovereign
bond exchanges that resulted in persistent litigation that can be
explained by the fact that Argentina was and remains unique in its
unilateral and coercive approach to the debt restructuring. Id. at
2. Similarly, the Institute of International Finance (a leading
organization that helped negotiate Greeces debt restructuring)
recently noted that Argentina finds itself in the present messy
situation because of its own behavior, evidenced by more than a
decade of unilateral treatment of its creditors. Ex. I, at 5.
Argentina also levels a new, desperate attack on the Injunction,
asserting without any record evidence that the Injunction leads to
exorbitant returns for certain Appellees. In the first instance,
the amount that Argentina owes today is the result only of
Argentinas obdurate refusal for 11 years to make payment on its FAA
Bonds. Argentinas imaginations about the returns Appellees will
garner are based only upon conjecture as to the amount that certain
Appellees paid for their bonds on the secondary market, and, in any
event, take no account of the extraordinary lengths to which
Appellees have had to go in pursuit of payment. Argentina Resp.
9-10 & n.6. More importantly, this argument flies in the face
of this Courts pronouncement that [a] well-developed market of
secondary purchasers
13
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of defaulted sovereign debt provides valuable incentives for
primary lenders to continue to lend to high-risk countries. Elliott
Assocs. L.P. v. Banco de la
Nacion, 194 F.3d 363, 380 (2d Cir. 1999); see also Weltover,
Inc. v. Republic of Argentina, 941 F.2d 145, 153 (2d Cir. 1991) (If
individuals or corporate entities become wary of their ability to
protect their rights in business transactions conducted in New York
they will look elsewhere.), affd, 504 U.S. 607 (1992). If, as
Argentina claims, the purchasers of bonds on the secondary market
were entitled to a lesser form of relief than original holders, the
secondary market for such bonds would rapidly dry up. In turn, that
would make it more difficult for countries to finance their
budgetsa result that would harm both creditors and borrowers.3
Finally, Argentinas proposal is inequitable because it would
require the continuing supervision of the Court for its
enforcement. Savoie v. Merchs. Bank, 84 F.3d 52, 58 (2d Cir. 1996).
Argentinas proposal would string out its payments
3
In calculating the discount that the Exchange Bondholders
supposedly took, Argentina conveniently ignores that many of those
investors also purchased their bonds at discounts on the secondary
market, in some cases in advance of the Exchange Offers, in other
cases after the Injunction was issued, and in others even after
this Court issued its decision of October 26, 2012. Some of these
investors accepted the Exchange Offers gleefully, because they
profited handsomely (yet now present themselves to this Court as
victims). This only amplifies the irony that it was the Exchange
Bondholders who demanded that Argentina violate the Equal Treatment
Provision by passing the Lock Law. JA-850.
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on the new bonds for more than 20 years, a proposal that seems
calculated principally to allow it an opportunity to implement its
plannow confirmed by its own Vice Presidentto find a mechanism to
move offshore its payments on the Exchange Bonds, so that it could
default on Appellees new bonds. In contrast, the district courts
formula is simple and faithful to the contractual terms of the FAA
Bonds: If Argentina makes its next periodic payment on the Exchange
Bonds4as it has repeatedly promised to doit must also pay 100% of
what it currently owes to Appellees. The Court recognized this
simplicity at oral argument, noting that the 100% formula
effectively means that [Appellees] only need[ ] to get one payment
out of this, if [Argentina] pay[s] 100%. Then youre done. Tr.
45:8-10. Under the district courts Injunction, the Courts role will
end decades sooner than under Argentinas proposal.
4
Argentinas next payment on the Exchange Bonds is due on June 2,
2013, followed by another payment on June 30.
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CONCLUSION Argentinas years of defiance cannot be cured by a
convoluted offer to give Appellees yet more Argentine IOUs, worth
pennies-on-the-dollar. Argentinas disregard for this Courts March 1
instructions only serves to demonstrate that it does not respect
its voluntarily assumed obligations or the rule of law. The
district courts Injunction was in no sense an abuse of discretion,
and should be affirmed. Dated: April 19, 2013 Respectfully
submitted, By: /s/ Theodore B. Olson Robert A. Cohen
([email protected]) Eric C. Kirsch ([email protected])
DECHERT LLP 1095 Avenue of the Americas New York, N.Y. 10036 (212)
698-3500 Theodore B. Olson ([email protected]) Matthew D.
McGill ([email protected]) Jason J. Mendro
([email protected]) GIBSON, DUNN & CRUTCHER LLP 1050
Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 955-8500
Counsel for Plaintiff-Appellee NML Capital, Ltd.
16
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Edward A. Friedman ([email protected]) Daniel B. Rapport
([email protected]) FRIEDMAN KAPLAN SEILER & ADELMAN LLP 7
Times Square New York, N.Y. 10036 (212) 833-1100
Roy T. Englert, Jr. ([email protected]) Mark T. Stancil
([email protected]) ROBBINS, RUSSELL, ENGLERT, ORSECK,
UNTEREINER & SAUBER LLP 1801 K Street, N.W. Washington, D.C.
20006 (202) 775-4500
Counsel for Plaintiffs-Appellees Aurelius Entities and Blue
Angel Capital I LLC Leonard F. Lesser ([email protected])
SIMON LESSER, P.C. 420 Lexington Avenue New York, N.Y. 10170 (212)
599-5455 Counsel for Plaintiff-Appellee Olifant Fund, Ltd. Michael
C. Spencer ([email protected]) Gary Snitow ([email protected])
MILBERG LLP One Pennsylvania Plaza New York, N.Y. 10019 (212)
594-5300 Counsel for Plaintiffs-Appellees Pablo Alberto Varela et
al.
17
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APPENDIX A This Appendix will explain and value Argentinas
proposal, which consists of an elimination Appellees existing FAA
Bonds in return for an alternative packages of new securities. Even
under the most favorable assumptions, Argentinas proposal offers
less than 15% of the amount currently due and payable to Appellees.
In form, the proposal resembles Argentinas 2010 exchange offer.
However, in substance this proposal is materially worse than either
prior exchange offer, even under the implausible assumption that
the bonds Argentina offers will trade at the same value as existing
Exchange Bonds. See supra at 10 n.2. I. The Discount Option Under
the limitations imposed by Argentina, the Discount Option is the
only alternative available for 99.9% of the value of Appellees
existing bonds. It comprises three new securities: (1) Discount
Bonds: The principal and unpaid interest under Appellees existing
FAA Bonds as of December 31, 2001, would be reduced by roughly
twothirds (66.3%) to establish the total principal amount (not
market value) of new Discount Bonds. These new bonds would pay
8.28% interest (part of which would be capitalized and paid out
only with principal), less than most of the FAA Bonds, on this
substantially diminished principal amount. Argentina Resp. 5.
Repayment
A-1
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of the new principal amount would not begin until June 2024 and
final repayment would not occur until 2033, two decades from now.
Id. at 16. (2) Global 17s Bonds: Argentina claims that these bonds
would be used to pay past due interest. The total face amount of
Global 17s delivered to Appellees is calculated based upon cash
interest that Argentina would have paid on the deeply reduced (by
66.3%) principal amount of Discount Bonds (not the FAA Bonds) using
the Discount Bond contract rate, which is lower than most FAA
Bonds, and only since 2004. Id. at 5. The Global 17s Bonds would
pay 8.75% interest, and principal would be repaid at maturity in
2017. Id. (3) GDP Units: This complex security yields payments only
when Argentina reports significantly rising levels of economic
growth. Argentina Resp. 6-7. Although the countrys current growth
rate is well below the trigger, GDP Units previously generated a
significant portion of the returns obtained to date by Exchange
Bondholders, including a payment of more than $3 billion in
December 2012. Because of a payment cap built into the Units, these
prior disbursements have substantially diminished potential future
payments, such that only 30% of the notional amount of the GDP
Units remains. Id. Argentinas proposal refuses to give Appellees
the prior payments that were made to Exchange Bondholders under the
GDP Units. Id. at 7.
A-2
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II.
The Par Option The Par Option is available only to individual,
retail plaintiff bondholders
limited to $50,000 per series of bonds. Argentina Resp. 3. The
Par Option would be available to satisfy less than one-tenth of one
percent of Argentinas obligations at issue in this appeal. The Par
Option is made up of three components: (1) Par Bonds: Amounts due
under Appellees existing FAA Bonds as of December 31, 2001 would be
converted into Par Bonds. The new bonds would pay only 2.5%
interest until 2019, thereafter rising to 3.75% through 2029 and
5.25% thereafter. Principal repayment would not begin until
September 2029 and final repayment would not occur until 2038. Id.
at 16-17. (2) Cash Payment: Argentina claims to pay past due
interest in cash. The total value of this cash payment is
calculated based upon cash interest that Argentina would have paid
on the Par Bonds since 2004. That interest is calculated at only
1.33% until March 2009 and 2.5% thereafter. Id. at 5. The cash
payment would total less than $100,000. (3) GDP Units: The Par
Option also includes GDP Units, under the same terms as those
included in the Discount Option. III. Valuation Argentina concedes
that its proposal should be valued in terms of the anticipated
market values of the new securities that it offers. Argentina Resp.
8-9. Us-
A-3
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ing market prices of Exchange Bonds as of March 1, 2013,
Argentina calculates that its Discount Option is worth $210
million. This constitutes less than 15% of the $1.47 billion due
under Appellees FAA Bonds. Argentina conceals the fact that the Par
Option would be worth less than $250,000 in total, by quoting
figures only in terms relative to one hand-selected FAA Bond.
Argentina Resp. 9. Even as to the few FAA Bonds eligible for this
Option, Argentina would pay less than 27-cents-on-the-dollar, and
in many instances much less. Even these paltry sums are overstated
for at least three reasons. First and foremost, the new securities
will be issued in different series from the Exchange Bonds. See
supra at 10-11. The smaller size of the issue and very real
possibility of future discrimination will inevitably diminish the
marketability and value of the new securities relative to existing
Exchange Bonds. Second, any effort by Appellees to sell these
bondsto the extent it is possible at allis certain to severely
depress market prices. Third, the new securities might well lack
many important protections of the FAA Bonds, not least equal
treatment provisions unconstrained by collective action
requirements.
A-4
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EXHIBIT A
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CREDIT POLICY
SPECIAL COMMENT
Sovereign Defaults Series:
The Role of Holdout Creditors and CACs in Sovereign Debt
Restructurings
Table of Contents:I. SOVEREIGN BOND RESTRUCTURINGS HAVE
GENERALLY BEEN RESOLVED QUICKLY II. HOLDOUTS HAVE NOT PRESENTED
SIGNIFICANT PROBLEMS III. CACS AND EXIT CONSENTS HAVE PLAYED A
SIGNIFICANT ROLE IN BOND EXCHANGES IV. CONCLUSION REFERENCES MOODYS
RELATED RESEARCH APPENDIX: SOVEREIGN BOND EXCHANGES SINCE 1997 -
DEBT EXCHANGE DETAILS AND INVESTOR LOSSES
3 8 11 13 14 16
Creditor litigation in the case of Argentina is drawing
attention to the role of holdout creditors in sovereign debt
restructurings. At the same time, in order to facilitate sovereign
debt exchanges, the European Stability Mechanism (ESM) Treaty is
mandating that Collective Action Clauses (CACs) be introduced into
euro area bond contracts. Despite the ongoing discussion in the
capital markets and the extensive theoretical literature on the
subject, empirical evidence on sovereign debt litigation and the
effect of CACs is scarce. In this report, we survey the 34
sovereign bond exchanges since 1997 and examine the role of holdout
creditors, CACs, and exit consent clauses in them.1 Our findings
include: Sovereign bond restructurings have generally been resolved
quickly, without severe creditor coordination problems, and
involving little litigation. On average, sovereign bond
restructurings closed 10 months after the government had announced
its intention to restructure and 7 months after the start of
negotiations with creditors. Of the 34 sovereign bond exchanges
since 1997, only two have been affected by holdout creditors the
exchanges of Argentina in 2005 and Dominica in 2004. Holdouts did
not impact the recent large Greek debt exchanges. A high level of
participation in sovereign bond restructuring offers has been the
norm outcome: creditor participation averaged 95%. The only
exchanges with lower participation rates were those of Argentina
and Dominica, where the realized participation rates were 76% and
72% respectively immediately after the exchange. Later on, however,
participation rates increased to 93% in Argentina and close to 100%
in Dominica. About 35% of sovereign debt exchanges relied on using
CACs or exit consents included in the bond contracts in order to
bind a larger share of creditors in the restructuring.
17
Analyst Contacts:NEW YORK +1.212.553.1653
Elena Duggar +1.212.553.1911 Group Credit Officer - Sovereign
Risk [email protected] Richard Cantor +1.212.553.3628 Chief
Credit Officer [email protected] Bart Oosterveld
+1.212.553.7914 Managing Director - Sovereign Risk
[email protected]
The creditor coordination problem has been one of the most
widespread concerns about sovereign debt restructurings in the
modern era of bond finance, both in terms of coordinating
potentially thousands of bondholders to agree on a restructuring
proposal in a timely fashion, and in terms of free rider
incentives. Creditor coordination problems have also motivated a
large body of theoretical work in the sovereign debt
literature.
1
This comment does not represent a legal opinion or
interpretation but summarizes our views on the potential credit
implications in light of the structure of sovereign bond contracts
and past experience with sovereign restructurings. The author would
like to thank Rodrigo Olivares-Caminal and Lee Buchheit for
valuable comments. The views in this report as well as remaining
errors are responsibility of the author.
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CREDIT POLICY
Our analysis of the 34 sovereign bond restructurings over the
past decade and a half shows that concerns over coordination
problems are exaggerated. In most cases, a bondholder committee was
formed within a reasonably short time frame and negotiations over
the restructuring were concluded relatively quickly, even though
almost half of debt exchanges involved a dispersed creditor
structure. We find that concerns about free rider problems are
exaggerated as well. Among the 34 sovereign bond exchanges, in only
two cases did holdout creditors represent more than 10% of the
value of outstanding bonds and only one case that of Argentina
resulted in persistent litigation. Moreover, the case of Argentina
was and remains unique in its unilateral and coercive approach to
the debt restructuring. Two strategies have been employed in order
to bind non-participating investors in sovereign debt exchanges the
use of CACs in order to amend the payment terms of bonds and the
use of exit consents to amend non-payment terms. In bonds issued
under New York law, CACs became popular after 2003 as an
alternative to the top-down administered mechanism for sovereign
debt restructuring (SDRM) suggested by the IMF. They are currently
commonly included in almost all New York law issuances. CACs
originated in English law bonds in 1879. English law bonds at least
since the 1990s have typically contained modification clauses that
enable bondholders to approve a restructuring in a vote that binds
even dissenting bondholders. The modification clause in English law
bonds requires between 18.75% and 75% voting thresholds,2 compared
to the 75% threshold typical of New York law CACs. Starting in
January 2013, the euro area has mandated the inclusion of CACs in
all euro area bond issuances, as part of the Treaty establishing
the European Stability Mechanism (ESM). The euro area CAC clause
applies a 66.6% majority threshold to individual bond series and
also includes a novel feature an aggregate CAC across all bond
series with a 75% majority threshold. In principle, the inclusion
of CACs represents a weakening of bondholder rights, and to the
extent that CACs increase the likelihood of a debt restructuring to
the detriment of bondholders, they are credit negative for
bondholders. In practice, however, the impact is likely only
marginal. The majority of euro area debt is issued under domestic
law. Domestic law bonds can be restructured with an act of
legislature or CACs can be retroactively inserted in domestic law
bonds by an act of legislature, as was done in Greece in early
2012. For English law bonds, the impact will depend on whether the
new CAC clause replaces an existing modification clause, which
could have a majority threshold higher or lower than 66.6%; in the
latter case, the new CAC might actually make a debt restructuring
more difficult.
2
The 18.75% threshold could be reached in the case where a
bondholder meeting does not reach a quorum and after a second
meeting the quorum is ratcheted down.
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I. Sovereign Bond Restructurings Have Generally Been Resolved
QuicklyCreditor coordination problems have motivated a large body
of theoretical work in the sovereign debt literature. Creditor
coordination has been one of the most widespread concerns about
sovereign debt restructurings, especially in the modern era of bond
finance which substituted the concentrated creditor structure of
bank lending of the 1970s and 1980s with the dispersed creditor
structure of bond financing of the 1990s and 2000s. It was feared
that the dispersed bond ownership would create problems both in
terms of coordinating potentially thousands of bondholders to agree
on a restructuring proposal in a timely fashion, and in terms of
free rider incentives. Despite the large body of theoretical
literature, empirical evidence on the subject is scarce. In this
study, we examine the role of creditor coordination problems by
analyzing the sovereign bond exchanges that have occurred over the
past decade and a half.On average, sovereign bond exchanges were
negotiated in 7 months
There have been 34 exchanges of sovereign bonds since 1997,
including both Moodys-rated and unrated debt instruments. The
exchanges have involved 20 sovereign governments, 9 of which
performed several debt exchanges in a row -- either one after the
other, or with several years in between the exchanges. Most recent
were the debt exchanges announced by Belize and by Jamaica in
February 2013.3 Belizes 2013 exchange follows a previous debt
exchange in February 2007; similarly, Jamaicas exchange follows a
previous bond exchange in February 2010. In Exhibit 1, we measure
the length of time it took to negotiate each bond exchange. For
each one, we note the date of: The initial announcement of the
intent to restructure by the government. In some cases, this
coincided with the date of missed payment on the debt instrument;
in other cases, this coincided with the announcement of the first
debt offer. The start of negotiations with creditors. In some
cases, this was the date of the first exchange offer by the
government. The formal announcement of the final exchange offer.
The distressed exchange date, which is generally the date of
closing of the exchange.
We find that contrary to widespread concerns, sovereign bond
restructurings have generally been resolved quickly and without
severe creditor coordination problems. On average, the exchanges
closed 10 months after the government announcement of the intention
to restructure and 7 months after the start of negotiations with
creditors. The average exchange closed within 2 months of the
launching of the final exchange offer.4
3
See Belize Debt Restructuring Fails to Resolve Credit
Challenges, Belize debt restructuring: 2007 vs 2012, and Moody's
downgrades Jamaica's government debt rating to Caa3, outlook
stable. Evidence presented in Benjamin and Wright (2009) suggests
that restructurings of commercial loans have taken much longer to
resolve, almost 8 years on average in their sample of foreign debt
restructurings over the 1980-2004 period. Further, evidence
presented in Trebesch (2008) (covering a different sample over the
1980-2006 period) also suggests that the average restructuring time
was the shortest for the post-1998 period, during which bond debt
was the main lending vehicle. Our findings are in line with Bi,
Chamon and Zettelmeyer (2011), who develop a theoretical model to
show why coordination failures have been rare in the recent
decade.
4
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EXHIBIT 1
239
Sovereign Bond Exchanges Since 1997Initial Default Date Aug-1998
Distressed Exchange Details LC debt (GKO and OFZ) FC debt (MIN FIN
III) FC debt (PRIN and IAN) LC T-bills held domestically LC T-bills
held by non-residents FC Chase-Manhattan loan FC ING bond and
Merrill Lynch bond FC Eurobonds Eurobonds External debt FC domestic
bonds Brady bonds Domestic debt External debt Eurobond Domestic
debt due in 2003-06 LT FC bonds (external and domestic) CENI bonds
FC-denom. payable in LC CENI bonds FC-denom. payable in LC LC bonds
(domestic and external) Domestic debt Global bond and domestic debt
International bonds Oct-04 Apr-04 Aug-06 Oct-08 Nov-08 Jan-10
Jan-11 Jan-11 Jun-11 Jun-11 Jul-11 Aug-12 Feb-13 Dec-04 Apr-04
Aug-06 Mar-09 no neg. Jan-10 Oct-11 Oct-12 Jul-11 Jul-11 Jul-11
Aug-12 Feb-13 Sep-05 Apr-05 Dec-06 Dec-09 Apr-09 Jan-10 Oct-11
Nov-12 Feb-12 Apr-12 Feb-12 Feb-13 Feb-13 Private external debt
External debt Global bonds Domestic debt Treasury bills
(short-term) Eurobond coupon Domestic bonds and external debt
Domestic loans (debt-land swap) Greek and foreign law bonds 2029
Superbond Domestic debt Aug-98 Aug-98 Aug-98 May-99 Jan-00 Jan-99
Aug-99 Sep-99 Apr-08 Nov-01 Nov-01 Jun-02 Oct-03 Mar-03 Jun-03
Apr-08 Dec-03 Aug-98 Sep-98 Aug-98 May-99 Jan-00 Nov-99 Jun-00
Aug-00 Apr-08 Nov-01 Sep-03 Jun-02 Oct-03 Mar-03 Jun-03 Apr-08
Dec-03 Aug-98 Sep-98 Sep-98 Jul-99 Feb-00 Nov-99 Jul-00 Aug-00
Sep-09 Nov-01 Jan-05 Aug-02 Nov-03 Apr-03 Jul-03 Jun-08 Apr-04
Country (NR = not rated at the time) Russia Russia Russia Ukraine
Ukraine Ukraine Ukraine Ukraine Pakistan Ecuador Ecuador Cote
d'Ivoire (NR) Argentina Argentina Moldova Paraguay (NR) Uruguay
Nicaragua Nicaragua Dominica (NR) Cameroon (NR) Grenada (NR)
Dominican Rep. Belize Seychelles (NR) Ecuador Jamaica Cote d'Ivoire
(NR) Cote d'Ivoire (NR) St. Kitts and Nevis (NR) St. Kitts and
Nevis (NR) Greece Belize Jamaica Announcement of Restructuring (or
Missed Payment) Aug-98 May-99 Dec-98 Start of Negotiations/ First
Offer Aug-98 Nov-99 May-99 Final Exchange Offer Mar-99 Jan-00
Feb-00 Distressed Exchange Date May-1999 Feb-2000 Aug-2000 Sep-1998
Sep-1998 Oct-1998 Aug-1999 Mar-2000 Dec-1999 Aug-2000 Aug-2000
Apr-2010 Nov-2001 Feb-2005 Oct-2002 Jul-2004 May-2003 Jul-2003
Jun-2008 Jun-2004 H1-2005 Nov-2005 May-2005 Feb-2007 Jan-2010
May-2009 Feb-2010 Dec-2011 Nov-12 Mar-2012 Apr-2012 Mar-2012 Mar-13
Feb-13
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Time to Closing of Exchange (Months) From Initial From From
Start of Default Announcement Negotiations 10 10 10 19 10 4 25 21
16 n.a. n.a. 1 12 19 n.a. 13 13 122 1 40 5 19 n.a. n.a. 60 12 12 12
1 3 19 6 n.a. 12 23 5 6 n.a. 7 n.a.
In Default During the Bond Exchange? yes yes yes
Sep-1998
Dec-1999 Aug-1999 Mar-2000 Nov-2001 Jun-2002 Jan-2003 May-2003
Jul-2003 Jul-2003 H2-2004 Dec-2004 May-2005 Dec-2006 Jul-2008
Dec-2008 Feb-2010 Jan-2011 Nov-2011 Mar-2012 Sep-2012 Feb-2013
Document: 950
2 2 3 4 3 12 13 12 25 1 40 5 10 3 2 3 7
2 1 3 4 3 1 3 1 25 1 18 5 10 3 2 3 7
14 14
12 14
no no no yes yes no yes yes yes no yes yes yes no no (yes) [1]
(yes) [2] yes yes no [3]
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7 16 7 2 12 23 10 11 9 8 1
7 11 no neg. 2 3 1 9 10 9 8 1
no yes yes no yes yes yes yes no yes no
Exchange AverageSources: Moodys, IMF country reports,
Sturzenegger and Zettelmeyer (2005), and Diaz-Cassou,
Erce-Dominguez and Vazquez-Zamora (2008). Notes: Time is rounded to
the month. [1] Payments suspended due to legal investigation. [2]
Bonds under legal dispute. [3] In default on loans.
18
10
7
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Further, Exhibit 2 plots the distribution of the time it took to
close debt exchanges. We see that 30% of debt exchanges were closed
within 2 months of the start of negotiations and over half of
exchanges were closed within 4 months. Over 80% of debt
restructurings were negotiated in 10 months or less.EXHIBIT 2
Time from Start of Negotiations with Creditors to Closing of the
ExchangeFrequency 8 7 Cumulative % 120% 100% 80% 60% 40% 20% 0% 1 2
3 4 5 6 Months 7 8 9 10 15 >15
Number of exchanges5 APRIL 9, 2013
6 5 4 3 2 1 0
Source: Moodys. Note: Based on the data in Exhibit 1.
Delays were related to parallel restructurings of official debt
and commercial loans
Only 4 out of the 34 debt exchanges since 1997 took longer than
a year to negotiate: the Dominican Republics international bonds
exchange of 2005 took 14 months, the Russian 2000 foreign debt
exchange took 16 months, the Argentinean external debt exchange of
2005 took 18 months, and the Cote dIvoires Brady bonds exchange of
2010 took 25 months. Apart from the case of Argentina, these delays
had to do with the restructuring strategy and the parallel
restructuring of official sector and commercial loan debt along
with the restructuring of the bond instruments. The delays in the
restructuring of Cote dIvoires Brady bonds were related to the
countrys emergence from war, the parallel restructuring of Paris
Club debt, and the need for the country to reach milestones for the
enhanced HIPC Initiative that unlocked the forgiveness of official
sector debt. Argentinas debt restructuring was somewhat unique in
its unilateral and coercive approach. Russia, on the other hand,
took an approach of conducting a specific debt workout for each
defaulted type of debt, in effect conducting three consecutive
rounds of debt exchanges between May 1999 and August 2000. Both
Argentinas 2005 debt exchange and Russias August 2000 debt
exchanges involved very large losses for investors 71% and 90%
respectively, as measured by trading prices. The Dominican
Republics 2005 exchange of its international bonds proceeded in
parallel with the countrys restructuring of its official debt and
commercial loans. Thus, between April 2004 and October 2005, the
Dominican Republic renegotiated its bilateral official debt with
Paris Club creditors (involving two agreements), two series of
international bonds, and its commercial loans debt with the London
Club. The authorities approach to the debt restructuring was
considered transparent and cooperative.
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Restructurings in default took longer to negotiate
As Exhibit 3 shows, the majority of sovereign bond exchanges,
65%, followed a payment default that is, there was a missed
interest or principal payment before or during the debt
negotiations. Only in 35% of exchanges was the sovereign current on
its debt repayments. Those debt exchanges accompanied by default
took twice as long to negotiate as those not accompanied by
default. On average, the time from the start of negotiations with
creditors to the closing of the debt exchange was 8 months for
exchanges in default and 4 months for exchanges without a payment
default.5 Limiting the sample to the events of default, on average
debt exchanges took 18 months from the initial default event to
closing of the exchange.EXHIBIT 3
Was the Debt Instrument in Default During the Negotiations of
the Debt Exchange?
No default 35% Default before negotiations 53%
Default during negotiations 12%
Source: Moodys. Note: Based on the data in Exhibit 1
Creditor structure appears weakly correlated with the length of
negotiations
The vast majority of sovereign bond exchanges were negotiated
relatively quickly, despite the fact that half of debt exchanges
involved dispersed creditor structures. The vast majority of
sovereign bond exchanges included consultations with bondholders
and, in most cases, a bondholder committee was formed within a
reasonably short timeframe and negotiations over the restructuring
were concluded relatively quickly. In fact, creditor structure
appears weakly correlated with the length of negotiations: as
Exhibit 4 shows, conditional on creditor structure, debt
negotiations took on average 7 months (with standard deviation of
5.5) for exchanges with a dispersed creditor structure and 6 months
(with standard deviation of 5.9) for exchanges involving a
concentrated creditor structure. Moreover, there were a number of
debt exchanges that involved dispersed creditor structure but still
closed within 3 months of the start of negotiations. The number of
debt instruments involved in the exchange does not appear to have
been decisive either; in fact, the average length of exchanges
involving 6 or fewer debt instruments was 8 months, while the
average length of exchanges involving multiple debt instruments
(from 16 to over 300) was 6 months (Exhibit 4). Sovereign bond
exchanges generally aimed to consolidate the number of outstanding
instruments, which improved the instruments trading liquidity.5
This result is consistent with findings in Schumacher, Trebesch
and Enderlein (2012) that preemptive restructurings without a
payment moratorium are associated with a lower risk of
litigation.
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EXHIBIT 4
The Average Length of Debt Negotiations Conditional on Creditor
Structure and on the Number of Debt Instruments Being Exchanged8 7
6
8 7 6Months
Months
5 4 3 2 1 0 Concentrated creditor structure Dispersed creditor
structure
5 4 3 2 1 0
6 or fewer debt instruments More than 6 debt instruments Source:
Moodys. Note: Based on the data in Exhibits 1 and 8 and the
Appendix. Equal number of observations in each category of creditor
structure. 15 exchanges involved 6 or fewer debt instruments and 19
exchanges involved multiple debt instruments.
The length of negotiations was related to the losses imposed on
investors
About half of debt exchanges in our sample involved domestic law
bonds and half involved bonds issued under foreign law. Domestic
debt exchanges seem on average to have been negotiated more quickly
than exchanges involving bonds issued under foreign law. As Exhibit
5 shows, the average length of negotiations for domestic debt
exchanges was 5 months (with standard deviation of 3.9), while the
average length of negotiations for bonds issued under foreign law
was almost 9 months (standard deviation of 6.9).EXHIBIT 5 EXHIBIT
6
The Average Length of Debt Negotiations Conditional on the
Governing Law of the Majority of Bond Instruments10 9 8 7Months
The Time to Negotiate vs. the Loss Imposed on Investors100 90 80
70Loss (%)
6 5 4 3 2 1 0 Domestic law Foreign law
60 50 40 30 20 10 0 0 5 10 15 20 25 Time to negotiate
(months)
Source: Moodys. Note: Based on the data in Exhibits 1 and 8 and
the Appendix. 18 exchanges involved local law instruments and 17
exchanges involved instruments issued under foreign law.
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Finally, as Exhibit 6 illustrates, there is about 40%
correlation between the time it took to negotiate a debt exchange
and the losses imposed on investors.6 Further, there appears to be
also some correlation between the size of the debt exchange and the
time it took to negotiate the restructuring, but this correlation
is much weaker at only about 16% (when the size of the debt
exchange is measured in terms of percent of countrys GDP).
II. Holdouts have not presented significant problemsOur analysis
of the 34 sovereign bond restructurings over the past decade and a
half shows that concerns about free rider problems prove
exaggerated as well.The average creditor participation rate was
95%
Exhibits 7 and 8 show the creditor participation rates realized
in each of the sovereign bond exchanges since 1997. The average
participation rate was 95% (including the recent 2013 debt
exchanges of Belize and Jamaica). Further, Exhibit 7 plots a
histogram of the distribution of participation rates achieved in
the various sovereign debt exchanges. We see that all cases but two
had a participation rate of 90% or higher. Moreover, 74% of
exchanges had a creditor participation rate of 95% or
higher.EXHIBIT 7
The Distribution of Participation Rates in Sovereign Bond
Exchanges Since 1997Frequency 8 7 Cumulative % 120% 100% 80% 60%
40% 20% 0% 72 75 90 91 92 93 94 95 96 97 98 99 100 Participation
rate (%)
Number of exchanges6
6 5 4 3 2 1 0
Source: Moodys. Note: Based on the data in Exhibit 8.
In only two cases did holdout creditors represent more than 10%
of the value of outstanding bonds. Dominicas debt exchange of June
2004 achieved a 72% participation rate and the exchange offer had
to be extended several times because of low participation.
Dominicas two bonds had a highly complex structure and were
stripped and sold as derivative zero coupon bonds to a wide variety
of regional investors. However, discussions with non-participating
creditors continued while interest payments at terms of the
restructuring were deposited in an escrow account. By 2012, the
participation rate in the exchange was close to 100%.
This result is consistent with evidence presented in Schumacher,
Trebesch and Enderlein (2012) that larger creditor losses are
associated with higher likelihood of litigation against sovereign
debtors in US and UK courts.
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EXHIBIT 8
239
Creditor Participation Rates and Legal Features of Sovereign
Bond Exchanges Since 1997Initial Default Date Aug-1998 Country (NR
= not rated at the time) Russia Russia Russia Ukraine Ukraine
Ukraine Ukraine Ukraine Pakistan Ecuador Ecuador Cote d'Ivoire (NR)
Argentina Argentina Luxembourg and German law English law NY law
Local law NY law Local law 8 governing laws Concentrated Dispersed
Dispersed Concentrated Dispersed Dispersed Concentrated
Concentrated Dispersed Dispersed Concentrated Concentrated
Dispersed Concentrated Concentrated Concentrated Concentrated
Dispersed Concentrated Concentrated English law Local law Local law
most, NY law, English law, and Japanese law Local law Local law
English law Local law NY law and local law NY law NY law English
law NY law Local law Local law NY law Local law Local law Local law
and some Foreign law NY law Local law Jul-2003 Jun-2008 Jun-2004
H1-2005 Nov-2005 May-2005 Feb-2007 Jan-2010 May-2009 Feb-2010
Dec-2011 Nov-12 Mar-2012 Apr-2012 Mar-2012 Mar-13 Feb-13 Moldova
Paraguay (NR) Uruguay Nicaragua Nicaragua Dominica (NR) Cameroon
(NR) Grenada (NR) Dominican Rep. Belize Seychelles (NR) Ecuador
Jamaica Cote d'Ivoire (NR) Cote d'Ivoire (NR) St. Kitts and Nevis
(NR) St. Kitts and Nevis (NR) Greece Belize Jamaica Oct-2002
Jul-2004 May-2003 Distressed Exchange Date May-1999 Feb-2000
Aug-2000 Sep-1998 Sep-1998 Oct-1998 Aug-1999 Mar-2000 Dec-1999
Aug-2000 Aug-2000 Apr-2010 Nov-2001 Feb-2005 Governing Law (Main)
Local law Local law English law Local law Local law Creditor
Structure Dispersed Dispersed Dispersed Dispersed Dispersed
Concentrated Conc. for ING bond; Disp. for other Concentrated for
majority of bonds Concentrated Concentrated Participation Rate 95%
for residents, 88.5% for non-residents 90% 99% Included in Original
Bonds? no no yes
Sep-1998
Dec-1999 Aug-1999 Mar-2000 Nov-2001
Jun-2002 Jan-2003 May-2003 Jul-2003 Jul-2003 H2-2004 Dec-2004
May-2005 Dec-2006 Jul-2008 Dec-2008 Feb-2010 Jan-2011 Nov-2011
Mar-2012 Sep-2012 Feb-2013
Document: 950
100% 100% (ING bond) and 50% (other) 99% 99% 97% very high
99.98% very high 76.2% in 2005, plus 69.5% in 2010, totaling 92.6%
(96% for domestic bondholders) 100% 96% 93% (98.8% domestic and
89.2% nonresident) very high very high 72% (by 2012, reached close
to 100%) 94% for external 97% 98.1% 100% 91% 99% 96% 100% 100%
almost universal 96.9% (100% for domestic) 100% (CAC triggered
after 86.2% part.) 99%
partly yes no
no partly yes partly
CACs Used in Exchange? no no no no no no no yes no no no no no
no
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Included in New Bonds? no no no
yes yes no
yes no yes
Exit Consents Used? no no no no no no no no no yes no yes no
no
Page: 35
yes
yes
n.a.
yes
yes
yes, voluntary
no no yes yes no no
partly (external bonds) no no no no yes yes no no yes yes n.a.
retroactively inserted yes no
yes
no [1]
yes yes yes yes n.a. no
no yes no no n.a. no [2]
Case: 12-105
yes yes n.a. yes yes no
n.a.
n.a. yes yes no
no no n.a. no no no
Exchange Average
95%
Source: Moodys, IMF country reports, Sturzenegger and
Zettelmeyer (2005), Diaz-Cassou, Erce-Dominguez and Vazquez-Zamora
(2008), and Andritzky (2006). Notes: [1] Each series of new bonds
carried a mandatory debt management feature that required Dominica
to retire from the market a specified percentage of the original
principal amount of that series in each year. [2] Early redemption
clause triggered.
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The Argentinean debt exchange of February 2005 also garnered a
low participation rate initially, of 76.2%. The debt exchange was
later re-opened in June 2010 and with the additional participation
by investors in 2010, the overall participation rate reached 92.6%.
Further, in August 1999 Ukraines restructuring of the ING bond
gathered full participation but the restructuring of the Merrill
Lynch bond drew about 50% participation. However, the remaining
part of the Merrill Lynch bond was later restructured as part of
the subsequent March 2000 debt exchange, so the cumulative
participation rate was higher. Across all debt exchanges, there
appears to be no systematic difference in the creditor
participation rates in domestic law versus foreign law
exchanges.Only one of the 34 sovereign debt exchanges resulted in
persistent litigation
From the 34 sovereign bond exchanges, only one case that of
Argentina resulted in persistent litigation.7 However, the case of
Argentina was and remains unique in its unilateral and coercive
approach to the debt restructuring. Only a few other court cases
have been filed over the years and they have generally not
represented an obstacle to the conclusion of debt exchanges. In a
comprehensive study of creditor litigation, Schumacher, Trebesch
and Enderlein (2012) surveyed lawsuits filed against debtor
governments in US and UK courts between 1976 and 2010. For our
sample of bond defaults since 1997, the survey finds lawsuits filed
by 47 different plaintiffs in the case of Argentina after the 2002
default, 1 lawsuit filed in the case of Dominica in 2005, 1 lawsuit
filed in the case of Ecuador in 2001 and 1 lawsuit filed in the
case of Grenada in 2006, by a commercial bank in the case of
Ecuador and by the Export-Import Bank of Taiwan in the case of
Dominica and Grenada. Further, within the broader sample of foreign
bond and loan defaults since 1976, the survey finds that runs to
the courthouse are the exception rather than the rule in sovereign
debt crises. Apart from Argentina and Peru (whose default involved
commercial loans), each of which led to more than 10 lawsuits, the
large majority of debt exchanges were implemented without a single
legal conflict.8Approaches to holdout creditors have varied
Sovereigns have taken several approaches to deal with holdout
creditors: Holdout creditors have been paid in full, as in the
cases of Russia, Greece and Ecuador (in 1999). Holdout bonds have
been exchanged at prevailing market value, as in the case of Cote
dIvoire in 2011. Debts which have not been restructured were no
longer serviced, as in the cases of Argentina and Grenada. In a few
cases, for example in Dominica, holdout bonds were not serviced but
as a sign of good faith, the government paid all interest falling
due into an escrow account held at the central bank.
7
See Legal Ruling Raises Questions About Argentinas Debt Payments
and US Court Ruling on Argentinas Debt Could Have Limited
Implications for Sovereign Debt Restructurings. Conclusions are
also supported in Trebesch (2008). Additionally, IIF/EMTA (2009)
reviews the experience with litigation in low-income countries, in
the context of HIPC and MDRI debt relief initiatives. The review
finds that incidents of litigation have been relatively few in
number and covered a small share of the outstanding value of
restructured sovereign debt. Further, the vast majority of lawsuits
were brought by trade creditors, private creditors and state-owned
enterprises from non-ParisClub creditors, not by distressed debt
funds.
8
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Thus, countries have dealt with holdout investors in several
different ways. Pakistan, for example, remained current on all
original obligations up to the debt exchange in order to avoid
litigation. Uruguay announced from the beginning that debt service
on the old bonds would be continued. Ecuador managed threats of
holdouts by settling accelerated claims and continuing to pay debt
service. As we discuss below, in a number cases, for example
Ukraine and Moldova, a holdout minority was bound into the
agreement through majority voting legal clauses.
III. CACs and Exit Consents Have Played a Significant Role in
Bond ExchangesOne of the ways countries have achieved high
participation rates in sovereign bond exchanges has been to use
CACs and exit consents embedded in the bond contracts.CACs
CACs allow a supermajority of creditors to amend the instruments
payment terms and other essential provisions. Thus, CACs allow a
supermajority of bondholders to agree to a debt restructuring that
is legally binding on all holders of the bond, including those who
vote against the restructuring. In New York law bonds, CACs became
popular after 2003, as an alternative to the top-down administered
mechanism for sovereign debt restructuring (SDRM) proposed by the
IMF at the time.9 Currently, CACs are commonly included in almost
all New York law issuances. The typical threshold for modification
of payment terms is a supermajority of 75% of bondholders. CACs
originated in English law bonds in 1879.10 English law bonds at
least since the 1990s typically contain modification clauses, which
enable bondholders to approve a restructuring in a vote that binds
even dissenting bondholders. Modification clauses in English law
bonds require between 18.75% and 75% voting thresholds.11 Further,
bonds issued under domestic law can be restructured by
retroactively inserting CACs into the bonds by an act of
legislation, as was done in Greece in early 2012.12 CACs do have a
limitation as they apply to individual bond series. Thus, it is
possible for nonparticipating investors to take blocking positions
on individual bond series while a high overall participation rate
in the restructuring process is still achieved. Aggregate CACs
could address this problem in the future, but they are not yet
widely used. Nevertheless, aggregate CAC was first introduced
during the restructuring of Uruguay in 2003,13 and subsequently was
adopted by the Dominican Republic, Argentina, and Slovenia (in
November 2012).Exit consents
An alternative way to impose a debt exchange offer on
non-participating investors involves using exit consents.
9 10 11
For more details, see Weidemaier and Gulati (2012) and Bradley
and Gulati (2012). See Buchheit and Gulati (2002). The 18.75%
threshold could be reached in the case where a bondholder meeting
does not reach a quorum and after a second meeting the quorum is
ratcheted down. As Bradley and Gulati (2012) show, most English law
bonds issued prior to 2003 have 18.75% voting threshold. Since
2003, while New York law bonds decreased the percentage requirement
from 100% to 75%, English law bonds increased the percentage
requirement from 18.75% to a range between 18.75% and 75%. The
reasons for the change have not been explained. See Greeces
Successful Bond Exchange Removes Key Uncertainty, but Risk of
Default Post-Exchange Remains High. Detailed studies of the Greek
debt exchange include Zettelmeyer, Trebesch and Gulati (2012) and
Georgakopoulos (2012). For more details, see Buchheit and Pam
(2004).
12
13
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Exit consents use the modification clauses in the bond contract
that allow a majority group of creditors to change the
non-financial terms of the old bonds in an exchange, in a way that
impairs the value of the old bonds. While amendments to financial
terms may require unanimity, other terms may normally be amended by
a majority or supermajority of creditors. Indeed, exit consents can
be used in restructurings to create an incentive to all creditors
to participate in the exchange through modifying bond provisions
such as the waiver of sovereign immunity, financial covenants or
listing requirements, or more generally by altering legal features
that affect the bonds liquidity or the holders ability to
litigate.14 In other words, exit consent is the technique, by which
bondholders grant their consent to amend certain terms of the
bonds, at the moment of accepting the exchange offer. Because of
these amendments, the defaulted bonds subject to the exchange
become less attractive in legal and financial terms, forcing a
greater number of bondholders to accept the exchange offer.
Otherwise, bondholders not accepting the offer are left with bonds
which are impaired and not featuring some of the original
contractual enhancements.Use of CACs in past sovereign
restructurings
As Exhibit 8 shows, over 35% of sovereign bond exchanges have
used either CACs and/or exit consents as part of the debt exchange
process. CACs have been triggered in nine restructurings and exit
consents have been used in four exchanges. CACs were used for the
first time during Ukraines Eurobonds exchange in 2000, then in
Moldova in 2002, Uruguay in 2003, and in Belize in 2007. Pakistan
did not use the CAC in its English law bonds during the 1999
restructuring. Ukraine took a hybrid approach to the March 2000
debt restructuring: it first invited investors mainly investment
banks and hedge funds to tender their bonds by granting an
irrevocable proxy vote for the restructuring offer; it then called
a bondholder meeting, where the proxy votes were automatically cast
in favor of modifying the terms of the old bonds. Moldova used the
CACs to amend the terms of payment according to the restructuring
offer after an agreement was reached with its major bondholder, who
held 78% of the outstanding bonds against a required 75% majority
vote threshold in the CACs. Uruguay used the CACs contained in its
Samurai bonds, the first use of CACs in Japan. Finally, Belizes
government used the CAC embedded in one of its bonds to bind 1.3%
of non-complying or non-responding creditors to accept the terms of
the exchange, increasing the acceptance rate to 98%. Belize was the
first country to use CACs in a debt restructuring under NY law in
more than 70 years.15 (Grenada did not use CACs in its 2005
exchange.) Since 2007, CACs have been triggered in most bond
exchanges that involved bonds with embedded CACs, including the
restructurings of the Seychelles, Cote dIvoire and St. Kitts.
Greeces March 2012 debt exchange incorporated a novel feature as an
Act of Parliament retroactively inserted CACs into domestic law
bonds prior to the announcement of the debt exchange offer. These
CACs were subsequently triggered to achieve a 100% participation
rate for domestic law bonds. More recently, Belizes February 2013
debt exchange triggered the CAC in the old bond instrument as 86%
majority participation was reached.16
14 15 16
For more details, see Buchheit and Gulati (2000). For more
details, see Buchheit and Karpinski (2007). See Belize Debt
Restructuring Fails to Resolve Credit Challenges.
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Use of exit consents in sovereign restructurings
Exit consents were used for the first time in Ecuadors
restructuring of external debt in August 2000, then in Uruguay in
May 2003, the Dominican Republic in May 2005, and the Core dIvoire
in April 2010. They have most commonly been used to remove the
cross-default and cross-acceleration clauses from the old bonds and
to lift the listing requirement. For example, the use of exit
consents in Ecuadors 2000 exchange involved an exchange offer that
required participating bondholders to also agree to a number of
amendments to non-payment terms. These amendments included the
deletion of the cross-acceleration clause, the provision that
restricted Ecuador from purchasing any of the Brady bonds while a
payment default was in progress, the covenant prohibiting Ecuador
to seek a further restructuring of Brady bonds, the negative pledge
covenant, and the covenant to maintain listing of the defaulted
bond on the Luxembourg Stock Exchange.17 The scope of exit consents
in Uruguays 2003 exchange was narrower than in Ecuador. Uruguays
exit consents were mainly aimed at avoiding litigation and limiting
the possibility of attaching future payments on the new bonds via a
court ruling (waiver of sovereign immunity), while also deleting
the cross-default and cross-acceleration provisions. Unlike in
Ecuador, in Uruguay the participating bondholders could opt out of
the exit consents. Argentinas 2005 debt exchange did not use exit
consents.18 Exit consents have often been used to remove
cross-acceleration and cross-default clauses from the old bond
contracts because once these clauses are removed, any non-payments
or disputes related to the old bonds will no longer trigger default
and acceleration on the new bonds. Thus, new bondholders are
protected from legal remedies by non-participating creditors. Exit
consents have generally withstood legal challenges under New York
law as US courts have refused to invalidate exit consents that
removed important bondholder rights and protections, including
financial covenants, in several corporate restructurings.19
IV. ConclusionOur findings indicate that creditor coordination
and holdouts have been less of a problem in sovereign bond
restructurings than commonly believed. Sovereign bond
restructurings have generally been resolved quickly, without severe
creditor coordination problems and with little litigation, except
for Argentina. Holdouts have not presented significant problems and
very high levels of participation have been the norm outcome in
sovereign bond restructuring offers.
17 18 19
See IMF (2001). For more details, see Das, Papaioannou and
Trebesch (2012) and Buchheit and Pam (2004). Ibid.
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ReferencesAndritzky, Jochen, 2006, Sovereign Default Risk
Valuation, Springer, Berlin. Benjamin, David and Mark L.J. Wright,
2009, Recovery Before Redemption: A Theory of Delays in Sovereign
Debt Renegotiations, State University of New York, Buffalo and
University of California, Los Angeles, mimeo, 8 April 2009. Bi,
Ran, Marcos Chamon and Jeromin Zettelmeyer, 2011, The Problem that
Wasn't: Coordination Failures in Sovereign Debt Restructurings, IMF
Working Paper 11/265, November 2011. Bradley, Michael H., James D.
Cox and Mitu Gulati, 2008, The Marker Reaction to Legal Shocks and
Their Antidotes: Lessons from the Sovereign Debt Market, Duke Law
School Faculty Scholarship Series, Paper 120. Bradley, Michael and
Mitu Gulati, 2012, Collective Action Clauses for the Eurozone: An
Empirical Analysis, Duke Law School Working Paper, 7 May 2012.
Buchheit, Lee C. and Mitu Gulati, 2000, Exit Consents in Sovereign
Bond Exchanges, UCLA Law Review, vol. 48, October 2000. Buchheit,
Lee C. and Mitu Gulati, 2002, Sovereign Bonds and the Collective
Will, Emory Law Journal, vol. 51, issue 4, Fall 2002. Buchheit, Lee
C. and Elizabeth Karpinski, 2007, Belizes Innovations, Butterworths
Journal of International Banking and Financial Law, May 2007.
Buchheit, Lee C. and Jeremiah S. Pam, 2004, Uruguays Innovations,
Journal of International Banking Law and Regulation, vol. 19, issue
1. Das, Udaibir, Michael Papaioannou and Christoph Trebesch, 2012,
Sovereign Debt Restructurings 19502010: Literature Survey, Data,
and Stylized Facts, IMF Working Paper 12/203, August 2012.
Diaz-Cassou, Javier, Aitor Erce-Dominguez and Juan J.
Vazquez-Zamora, 2008, Recent Episodes of Sovereign Debt
Restructurings. A Case-Study Approach, Banco de Espana Occasional
Paper 0804. Georgakopoulos, Nicholas L., 2012, Pyres, Haircuts, and
CACs: Lessons from Greco-Multilateralism for Creditors, Indiana
University, Robert H. MsKinney School of Law, mimeo, 16 May 2012.
International Monetary Fund, 2001, Involving the Private Sector in
the Resolution of Financial Crises - Restructuring International
Sovereign Bonds, Washington, DC, available at
http://www.imf.org/external/pubs/ft/series/03/IPS.pdf, p. 8 and 35.
Institute of International Finance (IIF) / Emerging Markets Trading
Association (EMTA), 2009, Creditor Litigation in Low-Income
Countries Benefiting from the Enhanced-HIPC and MDRI, June 2009,
Preliminary Analysis.
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Olivares-Caminal, Rodrigo, 2009, Legal Aspects of Sovereign Debt
Restructuring, Sweet & Maxwell, London. Schumacher, Julian,
Christoph Trebesch and Henrik Enderlein, 2012, Sovereign Defaults
in Court: The Rise of Creditor Litigation 1976-2010, mimeo, 11
December 2012. Sturzenegger, Federico and Jeromin Zettelmeyer,
2005, Haircuts: Estimating Investor Losses in Sovereign Debt
Restructurings, 1998-2005, IMF Working Paper 05/137, July 2005.
Trebesch, Christoph, 2008, Delays in Sovereign Debt Restructurings.
Should We Really Blame the Creditors?, Free University of Berlin,
mimeo, July 2008. Weidemaier, Mark C. and Gulati, Mitu, 2012, A
Peoples History of Collective Action Clauses, University of North
Carolina Legal Studies Research Paper No. 2172302, 7 November 2012.
Zettelmeyer, Jeromin, Trebesch, Christoph and Gulati, Mitu, 2012,
The Greek Debt Exchange: An Autopsy, EBRD and CERP, University of
Munich and CESIfo, and Duke University, mimeo, 11 September
2012.
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Moodys Related ResearchSpecial Comments:
US Court Ruling on Argentinas Debt Could Have Limited
Implications for Sovereign Debt Restructurings, December 2012
(147881) Legal Ruling Raises Questions About Argentinas Debt
Payments, November 2012 (147437) Sovereign Defaults Series:
Sovereign Debt Restructurings Provide Liquidity Relief But Often Do
Not Reduce Debt Levels, November 2012 (146909) Sovereign Defaults
Series: Investor Losses in Modern-Era Sovereign Bond
Restructurings, August 2012 (144129) Sovereign Default and Recovery
Rates, 1983-2012H1, July 2012 (144320) The Causes of Sovereign
Defaults: Ability to Manage Crises Not Merely Determined by Debt
Levels, November 2010 (127952) Market Use of Sovereign Ratings,
September 2010 (127353) Sovereign Defaults and Interference:
Perspectives on Government Risks, August 2008 (110114) How To Sue A
Sovereign: The Case Of Peru, November 2000 (61737) Sovereign Debt:
What Happens If A Sovereign Defaults, July 2000 (57753) Belize Debt
Restructuring Fails to Resolve Credit Challenges, March 2013
(151586) Belize debt restructuring: 2007 vs 2012, October 2012
(145828) Moody's downgrades Jamaica's government debt rating to
Caa3, outlook stable, March 2013 Greeces Successful Bond Exchange
Removes Key Uncertainty, but Risk of Default Post-Exchange Remains
High, March 2012 (140541)
Recent Sovereign Restructurings:
To access any of these reports, click on the entry above. Note
that these references are current as of the date of publication of
this report and that more recent reports may be available. All
research may not be available to all clients.
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Appendix: Sovereign Bond Exchanges Since 1997 - Debt Exchange
Details and Investor Losses 239Debt in Exchange Initial Default
Date Aug-1998 Distressed Exchange Details LC debt (GKO and OFZ) FC
debt (MIN FIN III) FC debt (PRIN and IAN) LC T-bills held
domestically LC T-bills held by non-residents FC Chase-Manhattan
loan FC ING bond and Merrill Lynch bond FC Eurobonds Eurobonds
External debt FC domestic bonds Brady bonds Domestic debt External
debt Eurobond Domestic debt due in 2003-06 LT FC bonds (external
and domestic) CENI bonds FC-denom. payable in LC CENI bonds
FC-denom. payable in LC LC bonds (domestic and external) Domestic
debt Global bond and domestic debt International bonds Private
external debt External debt Global bonds Domestic debt Treasury
bills (short-term) Eurobond coupon Domestic bonds and external debt
Domestic loans (debt-land swap) Greek and foreign law bonds 2029
Superbond Domestic debt 65 multiple multiple multiple, 2 external
bonds multiple 16 bonds 2 6 2 2 350 multiple 1 multiple multiple
multiple 1 multiple 73 multiple multiple 3 multiple 2 2 1 1 n.a.
(cash buyback) 23 3 n.a. (cash repayments) 2 n.a. (debt-land swap)
23 1 multiple Old Instruments multiple 1 2 multiple multiple 1 2 4
3 6 multiple 6 50 152 1 multiple New Instruments multiple 2 2
multiple 2 1 1 2 1 2 multiple 1 multiple 11 1 5 In US$bn 8.3 1.3
29.1 4.5 0.4 0.1 0.4 1.6 0.6 7.0 2.8 64.4 79.7 0.04 0.1 5.4 0.3 0.3
0.1 1.0 0.3 1.1 0.5 0.3 3.2 7.9 1.3 0.1 0.1 0.3 273.4 0.5 9.1
Country (NR = not rated at the time) Russia Russia Russia Ukraine
Ukraine Ukraine Ukraine Ukraine Pakistan Ecuador Ecuador Cote
d'Ivoire (NR) Argentina Argentina Moldova Paraguay (NR) Uruguay
Nicaragua Nicaragua Dominica (NR) Cameroon (NR) Grenada (NR)
Dominican Rep. Belize Seychelles (NR) Ecuador Jamaica Cote d'Ivoire
(NR) Cote d'Ivoire (NR) St. Kitts and Nevis (NR) St. Kitts and
Nevis (NR) Greece Belize Jamaica In % of Total Debt 4.5 0.7 16.4
30.0 2.8 0.7 2.0 8.3 1.2 49.5 18.7 49.6 41.7 3.2 6.5 56.8 6.1 12.5
44.5 10.5 65.1 16.7 51.6 29.6 25.3 56.5 8.5 0.6 12.8 30.3 55.2 47.3
53.8 In % of GDP 3.1 0.7 16.3 9.0 0.8 0.2 1.0 5.1 0.9 41.5 12.4
22.6 52.0 2.7 2.6 39.6 8.2 5.4 42.4 6.5 48.9 5.1 45.8 36.8 5.9 63.7
5.4 0.4 19.7 46.6 94.2 35.3 63.0
Loss (%)
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Nominal Haircut [1] 29 [2]
Sep-1998
36 34
5
Dec-1999 Aug-1999 Mar-2000 Nov-2001 Jun-2002 Jan-2003 May-2003
Jul-2003 Jul-2003 H2-2004 Dec-2004 May-2005 Dec-2006 Jul-2008
Dec-2008 Feb-2010 Jan-2011 Nov-2011 Mar-2012 Sep-2012 Feb-2013
40
20
Page: 43
66
Loss as Measured by Trading Prices or NPV of Cash Flows (*) 46
res., 62 non-res.; deval. 95* 75 90 18* 59* 31* 38* 31 48 56 9* 82
83 71 40 8*
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30
50 65
Case: 12-105
50
54 10
34 n.a. 51* 53* n.a. 35 5 24 70 72 10 5* 25 62* n.a. 76 35
12
Exchange Average
15
25
23
44
Sources: Moodys, IMF country reports, and Sturzenegger and
Zettelmeyer (2005). Notes: [1] Largest nominal haircut shown if new
instruments had different haircuts. [2] Holders of GKOs or OFZs had
their scheduled payments discounted to 19 August 1998 at the rate
of 50% per annum. Based on the resulting adjusted nominal claims,
they then received a package of cash and new securities.
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Report Number: 150162
Author Elena Duggar Production Specia